Tax and the Non-Executive Director

Posted on 4th March 2020 by Streets -  What's trending?

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With the extension to the IR35 rules set to hit the Private Sector in the coming weeks, employment status and the various rules that sit under this umbrella of legislation, are a key focus of HMRC in 2020.

Non-Executive Directors (NEDs) play a valuable role in many organisations, however, the UK tax treatment of such appointments is still an area that is misunderstood.

HMRC’s starting point is that NED’s should be treated in the same way as executive directors for PAYE purposes, and that is because both executive and non-executive directors are regarded as office holders.

As an office holder, individuals are taxed based on legislation which means they are subject to PAYE and NIC via the payroll.  The rules are in place to ensure they are treated in the same way as any other employee and despite the fact that a NED may enjoy a considerable degree of autonomy, payments made to a NED for their role as an office holder must be made through the payroll, accounting for both PAYE and class 1 NIC, including employer’s NIC. This applies to all fees, remuneration, benefits earned regarded as earned as the office holder.

Self-employed NEDs

HMRC does not accept that it is possible for NEDs to carry out office holder duties in a self-employed capacity. However, a NED may also provide consultancy services to the same company and it is the nature of the consultancy arrangement which determines its tax and NIC treatment.

Personal service companies

NEDs may provide their services via a personal service company (PSC), invoicing from the PSC for their director duties.  In this case the IR35 rules would apply.  As a non-executive director an individual would be classed as an office holder and in HMRC’s CEST tool for determining whether a PSC falls inside or outside of IR35, an office holder position would fall within IR35.

Whilst a PSC may sit between the NED and end client, it is still the NED who is performing the duties in a personal capacity and therefore in both cases below, the NED arrangement would fall within IR35.

  • the NEDs are individuals appointed as directors of the engaging company, or
  • their PSCs are appointed as corporate directors of the engaging company but the NEDs personally perform the non-executive director duties,

When the NED has more than one role

Non-executive directors may provide consultancy services in addition to fulfilling their director duties.  To mitigate the risk of HMRC challenge that all fees paid should be subject to PAYE and NIC, the consultancy services should be distinct and separate from the director duties, and the contractual arrangements between the parties should reflect the two different relationships.

The usual employment status tests must be considered in respect of the consultancy services to determine whether it is one of employment or self-employment.

Tax treatment of expenses

Commonly, companies also pick up NED’s travel expenses to attend Board meetings. Expenses may also extend to accommodation and food. Such expenses are also generally taxable in the UK as HMRC view the location of the Board meeting as a permanent workplace and journeys between a home and a permanent workplace are counted as private. Circumstances surrounding each case, however, should be closely reviewed to see if any available exemptions apply.


  • If the company arranges for the transport/accommodation, then these are reportable on form P11D and chargeable to Class 1A NIC.
  • Where the NED is reimbursed for these expenses the payment is treated as covering a pecuniary liability and is thus liable to PAYE and Class 1 NIC through the payroll.
  • If the company are happy to bear the whole cost of benefit i.e. including the taxes, then they can settle under PAYE Settlement Agreement (PSA) although consideration needs to be given to PSAs in the public sector.

Next steps

Employment status in general continues to be an area of HMRC focus, and there is no doubt that NED’s arrangements will be part of HMRC’s reviews.   

It is a complex area where working practices, contracts and the various areas of legislation which make up the umbrella of employment status rules should be considered.

Our tax team have a wealth of knowledge in this area and would be happy to help. Contact Us

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